Baseball's Free Market Essay

Picture this: it is right around Labor Day in the fall of 2011. Millions of people around the country are tuning their television sets, well, maybe not tune, but positioning their expensive satellites to the right angles so that the right signal is beamed down to their house from either the FOX or CBS station. It’s anywhere from 10 am to 1 pm depending on the time zone. Millions of bags of chips are open. Millions of cans or bottles of beer or pop are cracked. Millions of grills are fired up throughout the nation roasting hot dogs, hamburgers, bratwursts and other kinds of meat products. All of this, just so millions of people can watch… a cooking show?
That’s the reality that millions of people will be facing a year and a half from now if the National Football League doesn’t reach an agreement on a new collective bargaining agreement. What is a collective bargaining agreement? Collective bargaining agreements are an explicit employment contract negotiated by a labor union and employers who employ the union members (Niznik 1). The definition goes on to further state that collective bargaining agreements, or CBAs, are typically renegotiated periodically. That’s easy to agree with. The game changes, the sports changes, the players change, things change. It would be ridiculous for sports teams, especially those in the NFL, to operate under the same rules that they did in 1966. If that were the case, brain dead athletes in their 60s would be left with no retirement benefit packages and once the game is done with them, the game is done with them (not like that doesn’t happen already nowadays).
Fast forward about a month and a half to the end of October. There is a considerable amount less flair, and this same time period doesn’t have the same type of gusto as the one around Labor Day did. There are still millions around the nation and world tuned in though as another sport looks to kick off its new season. Normally the way this sport is structured is that the champions from the prior year play the first game of the season and receive their championship rings before the game. But, the millions of people around the world expecting to see the Los Angeles Lakers or Boston Celtics receive their diamond encrusted victory prizes are left with a rerun of Everybody Loves Raymond.
The NFL isn’t the only sport that is going through an intense renegotiating phase of their collective bargaining agreements. The National Basketball Association is going through the same exact thing. The story is the same in both sports: Owners want to make more money than they currently do, they want to be protected from making dumb decisions and they want a limit on the length and money of guaranteed contracts. NBA commissioner David Stern has said that the NBA as a whole will lose at least $400 million this season, and it is believed that at least 25 of the NBA’s 30 teams will lose money (Tomasson 1). When the market was thriving, owners spent like kings, throwing big dollars around to players who didn’t deserve half of what they got. Fast forward a few years, and these players who got six-year, multimillion dollar deals are just about finishing off their contracts, many of which don't even play for the team that signed them to the big money deals, many of which are sitting at home and collecting paychecks without having to do any work.
The NFL has similar problems, but their biggest problem is invested in doling out huge contracts to rookie players that have never played a down in the professional ranks. “So you’re a highly touted college player, one of, if not the best, players to play in the college ranks last year? Sounds great! We’ll give you a six-year deal worth $60 million, $25 million which is guaranteed! Hopefully you pan out, because if you don’t our franchise will be stuck picking in the top five of the draft every year until we can get rid of you.” That’s how the NFL works. While pro football is the only sport that doesn’t guarantee their contracts, there is a problem when baby-faced rookies are stepping out of the classrooms into the film rooms and making more than players who have been in the league for ten years. Oh, that and the owners want more money in their pocket.
Each system needs to be fixed, or tweaked, a decent amount. There’s no feeling like seeing your team pay an average player $11 million per year for five years when that player is only worth about $6 million. Just ask Pistons fans how they feel about Ben Gordon and Charlie Villanueva. If the auto-industry wasn’t enough for Detroit, they’re now stuck watching below-average basketball for the next few years. But the question is does each of these systems, which hampers each team with salary caps that restrict how much money you can pay your team in totality and which are socialistic in nature, need to be fixed or tweaked? Or is it that these systems need to be changed entirely?
There is another sport that has their collective bargaining agreement expire the same time period as football and basketball, but yet, nobody has really heard a peep out of that sport. Yes, baseball, the only true free market, capitalistic system in American sports. The MLB isn’t currently mired in tension and anxiety about whether or not they will play their season after this next year. The funny thing is, the biggest thing baseball is criticized for is for not being more like football or basketball. Why is that? Why is that the same person who would rather move his entire family a thousand miles away to a different town so he could make $20 grand extra per year criticizes the player who ditches his current team to sign a contract worth $2 million more per year? Isn't that the goal preached by many in the field of business ethics?
Another critique of baseball is that the playing field is often uneven when it comes to free agency. Teams in small markets often feel the pressure to resign very talented players from their fan bases, but often times they can't match the higher salaries that other clubs can provide. Basically every fan is worried about their top players becoming free agents because teams like the New York Yankees or Boston Red Sox have almost an unlimited amount of money they can spend. The Yankees spend more money paying their top three players than nine teams pay their entire roster. This sentiment isn't felt only be fans either, recently the Milwaukee Brewer's general manager went on a tangent about how it's going to be difficult resigning their best player, Prince Fielder, when the Yankees can offer him $30 million more over the same time span.
But isn't that what America is about? Isn't it about finding the best paying job? Murray Rothbard wrote that “it is to everyone’s self-interest to maximize his monetary income on the market” and that at the end of the day, “we cannot criticize the pursuit of monetary income on the market” (Rothbard 224). Rothbard also dissects the notion of taking a lower-paying job, calling it leisurely for the person to do so. He used an example of a coal miner who shifts to a more pleasant and easier job that pays less money. In the realm of sports, at first glance it would appear that it is just sports, as in the person goes out and plays the game. That is not so, as more and more research is being done in dissecting this world of sports, a lot of things are taken into consideration. The one to use in this example would be the break-down of a person's psyche. It is much easier and less stressful on a player if he plays in say Kansas City where there is less pressure on the team to perform well compared to New York. Some player's cannot handle that everyday psychological grind that the New York media gives and that the New York fan base gives. It would be much more leisurely for a player to play in Kansas City than it is playing in New York. And as Rothbard puts it, “every hour spent in leisure reduces the time a man can spend serving his fellows” (Rothbard 226). In sports sense, that could range from driving the market price up for other players that have a comparable skill set to helping another team win more games.
Now, what exactly is this free market system and how is baseball the best example of the free market system? A free market is defined as a business governed by the laws of supply and demand, not restrained by government interference, regulation or subsidy. Milton Friedman was a great proponent of the free market. Economist Isaac M. Morehouse summed up Friedman's life by saying Friedman “dedicated his life to fighting not just for the free market, but for freer markets. Friedman knew that government planners could never improve our economy by changing the rules for some, by limiting free trade and competition or by planning how every detail of the market should function. Friedman knew that in order to achieve their full potential, individuals need to be free to try and fail, or succeed, and to enjoy the fruits of their success” (Morehouse 1).
Baseball thus would be the freest market in Friedman's sense compared to the other sports. In the analogy between sports and real life, the players are the citizens while the team owners are the government. The owners basically dictate how their sport will be played, as they are the ones who finance everything and created the leagues that we have today. If it weren't for the owners, there would be no NFL, NBA, or MLB and sports would be left to play up until the college level and players would never be able to move from amateur to professional, left to play as recreational activities. In that sense, if it wasn't for government, people would be left in an anarchist state having to fend for themselves and there would be no order, responsibility or authority. While the basic feeling between the common man is “let the players play” in a sense regarding not only sports but business as well with little interference from the owners or government, like or not there needs to be that God-like figure to guide both realms.
Now that what constitutes what a professional sport is, baseball is the freest market based on how it is run. Bringing the definition of a free market back into mind, it is a system of supply and demand without government interference. The supply and demand aspect comes from teams being able to employ the players that they need. Each year there are handfuls of free agents that had their contracts expire. They are now in the market for a new contract, whether that new contract comes from his previous employer or a new employer is irrelevant. Of the thirty teams, each team obviously has certain demands they need and look to free agency to fill these demands. It is also irrelevant whether the team is looking to fill a void created by a player whose contract had expired or if the team is looking to upgrade a certain position, as there could be players available that perform their job better than the players that the team currently employs.
Now, what makes baseball the greatest advocate of the free market is that of the thirty teams, there are no restrictions or restraints whatsoever that dictate how a team can sign a player. Currently the highest paid player in the game is Alex Rodriguez who gets paid $33 million per year. Ironically, Rodriguez by himself almost equals the entire payroll of two teams, falling $2 million short of the Pittsburgh Pirates and $5 million short of the San Diego Padres. A team can pay their players an average $1.5 million or it can pay its players an average of $8 million and they still can compete. Money spent on players is not an indicator of success. The New York Mets and Chicago Cubs are routinely in the top five of payroll of the 30 teams year in and year out and neither team has won a championship in years.
Conversely, success is not always dictated by championships. To the average fan, yes they would love to see their team win the championship. But what dictates success for a team like the Yankees who always expect to win a championship every year is different from the expectations of say the Pittsburgh Pirates who may look at the season as a success if they only win more games than they did last year. The great thing about sports and how it relates the free market system is that the free market is run by competition. To some, sports are the ultimate competition. A championship is always the ends that a team aims for, so the actions that a team takes are always with a championship in mind.
For the common business model, the definition of “winner” and “loser” is not always as clear cut as a sport’s box score. As Morehouse points out, “there is, however, one major difference between baseball and the free market: In baseball, there is only one winner. The free market is completely different. If left free from government intervention, markets are not a zero sum game. Despite what the movie "Wall Street" says, when someone wins in a free market, nobody has to lose” (Morehouse 1). What Morehouse does fail to point out though is that not every team is uses wins and losses as a meter of success. Taking the Pittsburgh Pirates again and using them as an example, while aforementioned they may be looking to gauge the success of their season based on if they win more games than they did last year, but that may not be the case. Maybe they are looking to promote the progression of their players, as in if their players perform better than they did last year. Every business promotes job efficiency, because employees who perform their job better are better for the company as a whole. So while the Pirates may lose more games than they did last year, they could easily view the success of the season based on if their players performed better than they did in the previous year.
Going back to the free agency model used in baseball and how it promotes the free market system, it also promotes classical individualism in the sense that players can do what is best for them. Usually what they ought to do in regards to what is best is promoted by the system. The one thing that fans try to promote is altruism throughout sports. They want to see their favorite players stay loyal to their favorite teams. Fans hate seeing players from their teams jump ship and chase the almighty dollar. This is truer in baseball than in any other sport because there isn't a limit on salary that a team can pay. Fans expect their players to live by an altruistic code for no other reason than because they grow attached to them. Do fans of the banking industry or law practices have favorite banks or law firms that they root for? Do they have favorite bankers or lawyers that they want to see perform well? Would they feel the same taste of betrayal from these bankers or lawyers if they were to switch banks or law firms? Of course not.
Altruism doesn't have a place in sports just as it doesn't have a place from an ethical standpoint in business. The selfish acts from fans in wanting their star players to remain loyal to their favorite team aren’t altruistic at all. While from a moral standpoint it looks great on paper when star athletes leave money on the table and play for “the love of the game”. In reality, that hardly ever happens. When a player is altruistic and remains loyal to a team, usually it comes at a steep price. For example, the Minnesota Twins recently signed star catcher Joe Mauer to a ten-year contract extension that will pay him $18 to $20 million per year for the next ten years. For the past years, Minnesota has been a team that averaged $65 million per year in player salary. If they expected to sign Mauer to this extension, they would have expected to raise their payroll in order to stay competitive. If they expected to pay Mauer $20 million per year and kept their salary around $65 million, it limits how successful the team can be as they would then have to sign players of lesser value because they demand lesser money. So while Mauer could be looked at as being “altruistic”, in the end his selfish desires to remain loyal to his current team would have ended up hurting the team in the long run. That is of course if the Twins didn't increase player salary, which is what they did by $30 million. In reverse, the Twins organization was acting in the classical individualism mindset, doing what was best for them, and ironically it came at a cheaper price than it would have for other teams because the player in question was acting altruistically.
Now, in comparing the free market, supply and demand, capitalism promoting system of baseball with the other two popular sports, football and basketball, baseball shows why it is the best free market sport in America. First, in football each team only has X amount of dollars it can spend. There is a hard salary cap that each team cannot exceed, but there isn't a limit on how much a player can make in a season. So throughout football free agency, players cannot freely sign with teams. While players are still apt to sign with the best possible situation and the situation that promotes classical individualism, it technically isn't the actual “best” situation.
For instance, while a player can sign with the team that offers them the most money at the time, that team may not be the best team for the player in the long run. Say a player, a running-back, signs a one year deal with a team for $10 million. Say this team doesn't run the ball as often as the player would like, and his stats go down. At the end of his contract, his value is going to go down because his value is tied directly with his performance. When he enters free agency after the season, he may only be able to sign a deal worth $8 million for the year. Because the year before he signed with the team that offered him the most money, it resulted in the player getting less money the following year. Now, if players and teams weren't restricted by salary caps, this player could have signed with a team that ran the ball more often, resulting in the player attaining more stats which would then drive his value up, resulting in the player being more valuable. Football does not promote a free market system whatsoever, as the government, aka the owners, have perpetuated a system that doesn't resemble a free market at all. Instead, it advocates a utilitarianism society that promotes equality and strives for the overall happiness through the league, as time and time again teams have lost ten games one year and won ten games the next year.
One thing the football system has is the non-guaranteed contracts. If there is a free agent the team wants to sign but isn't able to do so because of salary cap implications, the team can easily release players from their contracts to free up money. This is different from the other sports as contracts are guaranteed and teams must pay out those contracts.
In basketball, the system takes some explaining to do. There is a limit to how much a player can make, and that amount is based on a player's tenure in the league. There isn't a limit on team salary, but in order for a team to be able to sign free agents the team's salary must be under a certain limit. For example, if a team wanted to sign a player to a $10 million deal, they must be at least $10 million under the salary limit. Also, basketball has a system that promotes the altruistic nature of the fans, as teams are able to re-sign their players for more money than other teams are able to sign them for. So while there is a limit to how to how much a player can make, the limit increases for the team the player currently plays for. For example, while the Lakers can re-sign Kobe Bryant for $25 million per year, every other team in the league can only offer to sign Bryant for close to $20 million per year.
One thing that basketball teams can't do is release players. They must pay out the remainder of the contracts, or they can offer to buy out the player's contract for a certain price. So while football teams can easily cut players so they can sign others, basketball teams cannot do this. A player who is released by the team still has his salary counted against the team's salary.
In breaking down basketball, it places a limit on how much a player can make which is far different from the other two major sports. It also places a limit on where players can sign. While on the surface it may look to be most beneficial for a player to re-sign with his current team in order to gain more money and to promote classical individualism, it may not be the best option. One thing that isn't emphasized is endorsement deals players get. Different companies who use athletes to promote their products would much rather have those players play in major cities and major television markets because those places offer more exposure. Therefore, players who play in major television markets get bigger endorsement deals.
In conclusion, baseball time and time again shows that it promotes the free market system and the free market system that Milton Friedman envisioned. It also promotes to the fullest extent classical individualism. It is the only sport that doesn't put a limit on how much an individual can make in salary, and it also doesn't place a limit on where an individual can play. Sports are also far more than just competition as the major sports, as illustrated, provides examples of different economical structures and ethical break-downs.